Saturday, 31 May 2014

After the UPA tried unsuccessfully since 2010 to raise the 26 per cent cap on foreign
direct investment (FDI) in defence production, a move that indigenous defence
companies and former Defence Minister AK Antony resisted staunchly, the new
government has initiated a fresh attempt along the same lines.

In 2010,
the department of industrial policy and promotion (DIPP) --- at the behest of
Commerce Minister Anand Sharma --- had pushed to raise the FDI cap to 74 per
cent. This time, under Nirmala Sitharaman, the DIPP has mooted three separate
options in a cabinet note --- proposing 49%, 74% or 100% FDI.

Commerce
ministry sources say that, given the new government’s focus on promoting
manufacture to generate employment, and with a new defence minister who is less
protective of indigenous defence industry, the international defence industry’s
longstanding demand to lower entry barriers into India might well be granted.

Even so,
there will be stout resistance from the department of defence production (DDP),
and from an indigenous defence industry that worries that the unfettered entry
of international vendors would wipe out fledgling Indian defence companies.

“Please name
one country that allows foreign defence companies unfettered access to the
market. America theoretically allows 100 per cent FDI, but its laws mandate
that every single employee must be a US national and the company must operate exclusively
on US soil. India hasn’t the means to enforce such rules, and foreign companies
will take full advantage,” says the CEO of a major Indian private sector
defence company.

So
watertight are the US laws that the Tel Aviv based president & CEO of, say
Israeli company Elbit is required to take Washington’s permission before he can
visit his own company facilities that operate in the US.

Furthermore,
say defence industry CEOs, there is no evidence that increasing FDI provides
any benefit to an industry. They cite the example of telecom, where permitting
100 per cent FDI has failed to galvanize the emergence of telecom manufacture.
To this day, there is no significant Indian manufacturer of telecom equipment.

In 2001, the DIPP permitted private sector participation in the defence industry, vide Press Note No 4 of 2001, which notified several measures for liberalising the FDI regime of that period. Paragraph (iii) of that notification said, “The defence industry sector is opened up to 100% for Indian private sector participation with FDI permissible up to 26%, both subject to licensing.”

A 26 per
cent holding allows the foreign partner only a veto over major policy
decisions. Were the FDI cap raised to 49 per cent, the foreign company would
still not control the company or the board, but would be able to repatriate a
higher share of the profit. A significant FDI limit rise would be if foreign
companies were permitted 51 per cent or above. And were 100 per cent FDI
permitted, foreign entities would be able to buy out Indian companies in full.

Defence
ministry officials and major Indian defence industries want to retain the 26
per cent cap, since it allows the Indian partner to demand technology infusion
from the foreign original equipment manufacturer (OEM).

Indian
industry sources point out that, while India proposes to raise FDI caps,
Germany has recently reduced its defence FDI cap from 26 per cent to 25 per
cent in order to further curtail the rights and powers of the foreign partner.

Citing an
agreement signed this week between Samsung, and Larsen & Toubro (L&T),
officials say the Korean defence major would have probably chosen to go it
alone, had 100 per cent FDI been allowed.

“Since
L&T is the controlling partner, it will ensure that Samsung brings in the
technology, which will be translated by low-cost Indian workers into cheaply
priced defence equipment. That is the model to follow,” says the official who
requested not to be named.

Foreign
OEMs deny this, arguing that they would be ready to bring in high-end
technology, and to source Indian-built defence equipment for their global
supply chains, if only they had more control over the joint venture company.

Indian CEOs
counter this with the question: Can you name one foreign OEM that has willingly
transferred technology to India? They point out that 72 multinational
corporations employ two lakh Indian engineers in research and development
(R&D) centres in places like Bangalore, Hyderabad and Pune. Yet none of the
technology that they have developed is available to India.

The
question at the heart of the FDI dilemma is: Should the government regard the defence
industry as just another avenue for creating manufacturing jobs? Or should the government
nurture a defence industry as a national strategic objective. A government
focused on job creation might not be inclined to treat defence as a special
sphere.

Wednesday, 28 May 2014

New defence minister endorses
UPA appointment of Lt Gen Dalbir Singh Suhag as next army chief

By Ajai
Shukla

Business Standard, 28th May 14

On a day
when most new ministers reached their respective ministries bright and early,
it was past noon when Arun Jaitley arrived at the defence ministry (MoD) in
South Block, after spending the morning at the finance ministry across the
road.

Mr Jaitley quickly
clarified that his custodianship of three crucial ministries --- finance, corporate
affairs and defence --- did not mean the MoD would remain neglected for long. Terming
this a “transient phase”, he said a full-time defence minister would be
appointed in a cabinet expansion within a “couple of weeks”.

Notwithstanding
his temporary status, Mr Jaitley hinted that the 26 per cent cap on foreign
direct investment (FDI) in the defence sector could be raised, which has been a
longstanding demand from international defence companies.

Pointing
out that FDI in defence had first been allowed by the Vajpayee government (in
2001), Mr Jaitley said that he would be “personally willing to examine” a
review of the cap.

Noting that
the finance and corporate affairs ministries would play a role in any decision
to raise the FDI limit, he admitted that the question “had already come up in
my preliminary discussions today and therefore I do not want to say anything
more before I look deeply into the matter.”

The BJP’s
election manifesto said that it would “encourage private sector participation
and investment, including FDI in selected defence industries.” The manifesto
does not commit to increasing the FDI cap across the board.

Mr Jaitley
endorsed the UPA government’s decision to name Lt Gen Dalbir Singh Suhag as the
next army chief, stating, “I firmly believe that there should be no controversy
on appointment of the person concerned. Some comments may have been made
regards the procedure of (his) appointment but there should be no reflection on
the person concerned.”

Taking a
swipe at the AK Antony-led MoD for having “slowed down” equipment
modernisation, the stopgap defence minister declared that quick procurement would
be “a matter of top priority” for the new government.

However, Mr
Jaitley struck a more cautious note whilst addressing senior ministry
bureaucrats of the rank of joint secretary and above. He stated that the
government would like to accelerate equipment procurement, “but established
procedures are there. We would like to ensure that there are no avoidable
consequences.”

The three
service chiefs also called on Mr Jaitley together in his office.

Also at the
MoD today was the new minister of state for defence, Rao Inderjit Singh, who
had held the same portfolio in the UPA government from 2004-2009. His
disillusionment with the Congress began after he was dropped as a minister in
2009, leading eventually to his joining the BJP.

Tuesday, 27 May 2014

Defence
Secretary RK Mathur, like his counterparts in other key ministries, will soon
make a presentation on the defence ministry (MoD) to Prime Minister Narendra
Modi. In his recommendations to the PM, Mathur --- a farsighted bureaucrat who
was badly hamstrung by the former defence minister’s paralysing conservatism
--- will choose between incremental and radical change. He could submit to
bureaucratic caution and recommend process improvements that are easy and acceptable:
streamlining procurement, promoting indigenisation, etc. This safe approach
might include a suggestion to raise the defence budget from its current 52-year
low of 1.74 per cent of GDP. Yet, timid measures would not yield the transformative
change that the new PM seeks.

Instead,
Mathur must be visionary. He should take to the PM just five simple measures
that would create or catalyse dramatic improvements across the wider defence arena.
It would be pointless recommending a larger defence budget; anyone can improve
defence by throwing vast sums of money at it. Mathur should focus on getting
more bang for the buck. Given the almost criminal inefficiency of our defence
processes, this can be achieved without fuss.

India’s fundamental
defence problem is the army’s bloated manpower, the cost of which leaves little
for modern equipment. The army chief says defending the mountainous border needs
large numbers. True but China, with far longer unsettled borders slashed the
People’s Liberation Army (PLA) by 10 lakh in 1985; another 5 lakh in 1997, and
2 lakh more in 2003, to a size not much larger than India’s. In contrast, our
army is expanding, adding 80,000 soldiers this decade, when half the army’s
current budget already goes on salaries. Adding bayonets is useless when that
leaves no money for equipment like artillery? The defence secretary must
recommend time-bound manpower reduction targets, right-sizing over this decade,
from 12 lakhs today to a 9 lakh strong army.

These smaller
numbers can successfully defend our far-flung borders provided they can move
quickly between sectors. Currently every sector must be heavily manned in case
of a full-scale attack. A poor border road network precludes the quick
reinforcement of a threatened sector. A time-bound road-building plan would
allow many sectors to be lightly held, saving manpower costs that could buy heavier
and more accurate firepower. To meet road-building targets, an expanded Border
Roads Organisation (BRO) must be placed under the MoD (it is currently under
the ministry of road transport and highways). The defence minister must chair
the apex Border Roads Management Board, which was once chaired by Jawaharlal
Nehru himself. Border states must be incentivised, through border area development
funds, to play their role in land acquisition.

The third suggestion,
which would be enabled by a better-connected border, is to radically outsource
the army’s administrative functions. Today, based on the dated assumption that
wars are fought mainly in uninhabited areas, the army’s administrative
functions are discharged by expensive combat soldiers. Military salaries and
lifetime pensions are paid to legions of “combatant tradesmen” who wash, sweep,
cook and cut hair. In an equipment heavy armoured division, every sixth combatant
is a mechanic, performing a role that civilians can discharge more cheaply and
better. Other soldiers supply rations, clothing, spare parts and fuel, jobs
that most armies have privatised almost entirely. Today, even a waiter in an
officers’ mess is a full-time soldier, entitled to pay and pension for life.

Privatising
these functions would improve the military’s “tooth-to-tail ratio”, cut salary
and pension bills, create economic opportunities for local populations in
border areas who would be hired by private service contractors. It would also
“civilianise” defence, creating a new genre of combat service contractors.

Fourthly, Mr
Mathur should place national interest over political and IAS apprehensions and
recommend the appointment of a chief of defence staff. The CDS, a five-star
rank officer, appointed for a three-year tenure, is badly needed to coordinate
and oversee manpower and equipment planning of all three services. Today, with
nobody to mandate joint-service aims, priorities or roles, the army, navy and
air force jostle for money and turf, wasting scarce funds in duplicating
capabilities. Furthermore, without an overall commander to prioritise between
competing service demands, the tri-service 15-year equipment plan is a
worthless wish list that, in pandering to all three services, goes far beyond
the actual availability of funds. Finally, a CDS would provide the military
with unified command in war, and the ministry with single-point advice in
peace.

Finally, to
create a viable defence industry the MoD must consciously assume a “market
maker” role. For almost a decade, Mr Antony has shied away from any role in
developing indigenous companies into serious defence players. Instead, he
reduced defence procurement and production policy to a decision matrix, devoid
of judgment and discretion. The MoD must overtly and unabashedly favour
indigenous production, while remaining impartial between public and private
sector. To maintain even-handedness, the MoD must unburden itself of the nine
defence PSUs, transferring them to the Ministry of Heavy Industry. To promote
high technology, the MoD should identify innovative Indian companies and focus
on their development. Controls must be loosened on defence exports to help
these companies become global players, benefiting from economies of scale. At
least 100-150 “Make” category projects must be kicked off, providing these
companies the framework to grow. Technology entrepreneurs should be
additionally seeded through the DARPA model, in which the Pentagon’s Defence
Advance Research Projects Agency funds small projects that are directed towards
futuristic war. DARPA’s successes include creating the Internet; but Indian
technologists have no one to turn to.

None of
these proposals are difficult for the new government, given its mandate and
vision for change. Yet it is disappointing that a full-time minister has not
been announced for the MoD. Arun Jaitley would
find it difficult to function effectively as a part-time defence minister,
given the many technicalities and challenges involved. It is to be hoped that
Mr Modi will appoint a full-time defence minister soon.

Monday, 26 May 2014

The defence
minister’s corner office in South Block, New Delhi, which is readying for a new
incumbent, has its first piece of work cut out. On Friday, an Italian court permitted
the defence ministry (MoD) to encash bank guarantees worth Euro 228 million, after
terminating a Euro 556 million deal with AgustaWestland for twelve AW-101
helicopters to fly top Indian leaders in safety and style.

The MoD was
seeking to recover Euro 278 million it had paid AgustaWestland, after
unilaterally terminating the contract on New Year Day, alleging that the
Anglo-Italian helicopter maker had bribed Indian officials to win the contract.
An Italian magistrate had stayed that request on March 17, but the Court of
Milan has now overturned that stay.

In a
statement on Sunday, the MoD announced, “The appellate court in Milan, Italy,
in its judgement on Friday, 23 May, 2014, has substantially upheld the claims
of Government of India against AgustaWestland International Ltd (AWIL), A W Spa
and Deutsche Bank, Italy on the encashment of Bank Guarantees and Performance
Bond in the VVIP helicopter case. The court also ordered AWIL and A W Spa to
reimburse legal costs of Government of India. MoD is studying the order and
will take immediate steps to recover the amounts fully.”

Italian
defence giant, Finmeccanica, which owns AgustaWestland, admitted on its website
that the Italian court had “partially upheld” the MoD’s complaint. It said, “AgustaWestland
will assert its rights to recover the aforesaid amounts in the arbitration
process already initiated.”

A
three-person arbitration board is due to review the matter. AgustaWestland
invoked arbitration last November, naming former Supreme Court judge, Justice
BN Srikrishna as an arbitrator.

On January
1, the MoD chose Justice BP Jeevan Reddy as a second arbitrator. The Indian
Arbitration and Conciliation Act, 1996, which allows each of the disputants to
name an arbitrator, mandates that the third must be appointed by mutual
agreement.

AgustaWestland
sources reveal that the company is corresponding with the MoD to agree on the
third arbitrator, after which arbitration will commence.

The scandal
broke on February 12, 2013, when Italian prosecutors arrested Giuseppe Orsi,
the boss of Italian defence giant, Finmeccanica, on charges of bribing Indian
officials to win the deal. In 2010, when the helicopter contract was signed, Orsi
had headed AgustaWestland.

Following
his arrest, the MoD quickly froze the contract, suspended payment to
AgustaWestland, and initiated a Central Bureau of Investigation (CBI) enquiry.
The CBI has filed First Information Reports against 15 people, including former
IAF boss, Air Chief Marshal S P Tyagi.

While the
CBI investigation has not presented clinching evidence, Italian investigators
have presented a "budget document", allegedly prepared in 2008 by key
middleman, Guido Haschke, and his accomplice, Christian Michel. The “budget
document” lists payments to politicians ("POL" in the document) and
some euro 15 million to an unnamed family (annotated as "FAM").

The Italian
prosecutors allege that AgustaWestland paid some euro 51 million to Haschke,
Michel and another accomplice, Carlo Gerosa, to seal the deal. The money was
allegedly funnelled through software companies, Mohali-based IDS Infotech and
Chandigarh-based Aeromatrix Info Solutions Pvt Ltd.

Three
AW-101 helicopters have already been supplied to the Indian Air Force.

During this three-day visit
from 17th to 20th May, sailors from both navies will
engage in various professional, cultural, social and sports events. The PLAN
personnel will play friendly basketball and football matches with their Indian
counterparts from the Eastern Fleet. PLAN sailors will
also sightsee around Visakhapatnam.

Commisioned in 1987, training
ship Zhenghe has Commander Ye Kaihua
at the helm, while the frigate Weifang is
commanded by Captain Zhang Zaige. The ships are on a good will visit to
four Asian Nations including Myanmar, Indonesia and Vietnam.

Saturday, 17 May 2014

by Ajai ShuklaBusiness Standard, 16 May 14The Indian Navy is dangerously unfit for combat, despite
having been allocated more than 15 per cent of the defence budget for years. As
this newspaper has reported, six new Scorpene submarines being built at Mazagon
Dock Ltd, Mumbai, will start entering the fleet in 2016 without the torpedoes
that form their essential armament. None of the navy’s 25 capital warships
built in the last 17 years has towed array sonar, without which they are
dangerously vulnerable to enemy submarines.Three new Kolkata class destroyers, the first of which will soon be
commissioned, have no protection against anti-ship missiles that can be fired
against them from air, surface warships or submarines. That is because the
eponymous long range surface-to-air missile, or LR-SAM, that was to safeguard
them has not yet been completed by an Israeli-Indian consortium that has been developing
the anti-missile system for a decade. Likewise, the flagship aircraft carrier,
INS Vikramaditya, has been commissioned without the LR-SAM. Several other
warships that are defended by the Israeli Barak anti-missile system are at risk
because the defence ministry has delayed the procurement of replacement
missiles for years. It can be expected that these vessels will be fitted with these
systems some day. Yet, until that day, gaping holes in the defences of
practically every vessel in the navy make them sitting ducks in the event of
war.

As worrying is the failure to conclude a contract for mine
counter-measure vessels (MCMVs). Without adequate numbers of these, enemy mines
will be released by fishing vessels and dhows to blockade India’s military and
commercial ports at the start of a war. The navy requires at least 24 MCMVs to
protect Indian naval bases, ports and offshore oil and gas installations; there
are just seven minesweepers today. Delay in buying could result in sunken
vessels, lives lost and insurance rates going sky-high.

Much of the blame for this situation goes to the defence
ministry, which blocks the procurement of even desperately needed equipment as
soon as anyone complains --- even if the complaint is anonymous, or from a
company that is losing the contract and clearly wishes to derail the process.
In some cases such complaints have been rejected by the Central Vigilance
Commission and by the ministry’s own independent monitors committee. Yet, infected by Defence Minister AK
Antony’s conviction that no contract with even the whiff of controversy should
go through, these procurements continue to languish.

Capability
gaps also stem from the navy’s hankering for cutting edge equipment that must
be developed even as the warship it is meant for is being built. Sensible
navies shy away from “concurrent engineering” as this risky process is called,
because any delay in developing the equipment --- as in the case of the LR-SAM
--- means that the warship is ready, but the equipment is not. It is too late
then to retrofit other equipment and that warship remains operationally
vulnerable until development is completed.

Over the
preceding decade, the ministry’s belief that anything goes, even grave
operational shortfalls, has poisoned military culture as well. It must be
ensured that the lakhs of crores being spent on national defence result in an
operational and ready military, not one that will be ready in some distant
future.

At the
start of this year, INS Vikramaditya, the navy’s brand new aircraft carrier,
sailed into the Arabian Sea near the end of a non-stop, 15,000-kilometre voyage
from Russia. Accompanied till the Mediterranean by a single Talwar-class
frigate, the Vikramaditya was joined by an armada of Indian warships for the
last leg of its journey. This was not celebration, but operational safety. With
the navy’s best warships worryingly incapable of detecting modern submarines,
such as Pakistan’s Agosta 90B, the flotilla was tasked to bring Vikramaditya
safely home.

The reason
for this blindness to submarines: the ministry of defence (MoD) has steadfastly
blocked the import of an Advanced Towed Array Sonar (ATAS), a sensor crucial
for detecting submarines in warm, shallow waters like those of the Arabian Sea.
Without ATAS, India’s most advanced warships --- including 25 destroyers,
frigates and corvettes built and bought since 1997 --- would be sitting ducks
in any future war. Enemy submarines, lurking undetected, can pick off Indian
warships with heavy torpedoes from 50-80 kilometres away.

The import
of ATAS was blocked since the mid-1990s because the Defence R&D
Organisation (DRDO) was developing an indigenous ATAS called Nagan. In 2012,
the Nagan project was officially shut down and the DRDO began work on another
system called ALTAS. This has not been operationalized either.

Meanwhile,
two generations of otherwise capable warships sail with an empty space where
ATAS will be fitted some day. Until then, these vessels have only limited sonar
capability, provided by a relatively ineffective Passive Towed Array Sonar
(PTAS), and a hull-mounted sonar called HUMSA.

The warships
without ATAS include three Delhi-class destroyers (INS Delhi, Mumbai and
Mysore); three Brahmaputra class frigates (INS Brahmaputra, Betwa and Beas);
six Talwar class frigates; and three Shivalik class frigates (INS Shivalik,
Satpura and Sahyadri). Ten more warships are currently being built without ATAS
--- four Kamorta class corvettes (INS Kamorta, Kadmatt, Kiltan and Kavaratti);
and three Kolkata class destroyers (INS Kolkata, Kochi and Chennai).

In 2009, responding
to a furious navy, the MoD consented to import six ATAS for some Rs 300 crore.
A German company, Atlas Elektronik GmbH, won the tender but the contract was
stalled by predictable complaints of wrongdoing. After the MoD found four successive
complaints baseless, the ministry’s independent monitors committee examined the
allegations in March. No wrongdoing was found and the committee suggested the
purchase be expedited. Yet, Defence Minister AK Antony continues to stonewall.

A serving
admiral told Business Standard tersely: “The MoD is endangering warships worth
several thousand crore each, and the lives of several hundred crewmen, by
blocking the import of ATAS that costs just Rs 50 crore each.”

ATAS is especially
vital for our neighbourhood. Warships detect underwater objects (like submarines)
with sonar --- a “ping” of sound emitted into the water that reflects back from
submarines, just as radar bounces back from aircraft. In our waters, however, that
signal often gets lost. Our warm climes cause a sharp “temperature gradient”, with
warm water on the surface that cools rapidly as one goes deeper. These water
layers at different temperatures refract (bend) sonar waves, often deflecting
them altogether from the warship’s sensors. With the returning sound signal
lost, the warship cannot detect the submarine.

To overcome
this, an ATAS is towed by the warship with a cable, extending deep below the
surface, into the cooler layers where submarines lurk. With the ATAS positioned
in the colder water layers, there is no “temperature differential”. Even the faintest
return signal from a submarine is detected.

PTAS, unlike
ATAS, does not actively “ping”. It can only detect a submarine that is emitting
sound. Since submarines on patrol are deliberately silent, they emit no sound
for a PTAS to detect.

While the
Arabian Sea offers tricky, shallow-water operating conditions, the Bay of
Bengal is much deeper. Thirty kilometres off Karachi, the ocean floor is just
40 metres deep; while 5 kilometres off Visakhapatnam, the depth is 3,000
metres. The Arabian Sea, therefore, is the playground of small conventional
submarines.

Simultaneously,
the Bay of Bengal offers the deep diving conditions that favour nuclear
submarines, which are too large for shallow waters. That is why experts predict
India will operate both conventional and nuclear submarines --- conventional in
shallow water, and nuclear in deep water. Major navies tend to choose one or
the other; e.g. the US Navy operates only nuclear submarines.

In
servicing India’s need for high-end sonars, the winner of the ATAS tender would
grab in pole position. Already, Bharat Electronics Ltd (BEL) is building 10
ATAS in partnership with a foreign vendor, probably the winner of the ATAS
contract. Eighty advanced sonars could be tendered over the next three years.

Besides
submarines, sonars would be required for anti-submarine surface vessels.
Last month, the MoD tendered for 16 Anti Submarine Warfare Shallow Water Craft
(ASWC). Their critical sensor will be sophisticated sonar with an
electronically controlled beam that can flash in any direction.

Notwithstanding
the delay in ATAS, Atlas Elektronik is expected to perform strongly, given its
expertise in shallow water sonar. Through two world wars, German submarines
(called Unterseeboots, or U-boats) were feared for their sonars. During the
Cold War, German submarines operated from a short coastline along the Baltic
Sea, which was relatively shallow, like the Arabian Sea.

Neither the
MoD nor Atlas Electronik responded to an emailed request for comments for this article.

Alongside a
three-year delay in adding six new Scorpene submarines to its depleting ranks,
the Indian Navy faces an even more disquieting prospect --- the Scorpenes will start
joining the fleet in 2016 without their main weapon, the heavyweight torpedo.

Submarines carry
two major weapons --- missiles against ships and land targets, and torpedoes to
sink enemy ships and submarines. Missiles can be intercepted by anti-missile systems;
and they inflict less damage. Torpedoes are harder to intercept and they blast holes
below the waterline that quickly flood their targets, sinking them.

Inexplicably,
the ministry of defence (MoD) has failed to buy torpedoes to arm the Scorpenes
it contracted for in 2005. In 2008, after a global tender, Italian company WASS
was selected to supply their Black Shark torpedoes that were specifically
engineered for the Scorpene. In 2011, a price was finalised: about $300 million
for 98 torpedoes. Yet, even today, the contract remains unsigned.

Consequently,
when the first Scorpene submarine is commissioned in 2016, it will be armed only
with the Exocet anti-ship missile. Were it to be challenged by Pakistan’s silent
new Khalid-class submarines --- the French Agosta-90B --- the Scorpene will
have empty torpedo tubes. Even if the new government signs the contract quickly,
delivery would be unlikely before 2017.

The MoD did
not respond to Business Standard’s emailed questions.

A top-level
navy planner laments the MOD’s lack of accountability, contrasting it with how
former navy chief, Admiral DK Joshi, took responsibility for warship accidents and
resigned. Says the naval officer: “If a military person were responsible for
commissioning a Rs 4,000 crore submarine without its primary armament, he would
be charged with dereliction of duty.”

The delay in
signing the torpedo contract followed accusations that WASS had won unfairly, a
tactic commonly used by arms vendors who are confident the MoD will suspend the
contract and order investigations.

Eventually,
Defence Minister AK Antony referred the matter to the Central Vigilance
Commission, which found no indication of wrongdoing. Even so, the MoD continues
to stonewall.

The prospect
of an unarmed Scorpene has sent alarm bells through a navy that is down to just
11 submarines, against a minimum of 18 that naval planners require for safeguarding
India’s maritime interests.

Of 14
submarines in the fleet, three Russian Kilo-class vessels are unavailable: INS
Sindhurakshak was destroyed in a cataclysmic explosion in Mumbai last August;
INS Sindhuratna will take a year to repair after a fire in February. A third,
INS Sindhukirti, was scuttled by Hindustan Shipyard Ltd, Visakhapatnam (HSL),
which dismantled the submarine for refit in 2006 but cannot put it back
together again.

The navy is
furious that a Rs 1,500 crore frontline submarine was lost because the MoD insisted
on providing work to HSL, a public sector shipyard without expertise in
submarine repair.

Disregarding
this experience, the MoD now insists that HSL builds one of the six new
submarines being procured under the Rs 50,000 crore Project 75I. Cabinet sanction
is being obtained for two to be built abroad and four in India --- one in HSL
and three in an unspecified shipyard, probably Mazagon Dock Ltd, Mumbai (MDL).

A senior admiral
observes wryly, “INS Sindhukirti has already been destroyed by HSL. Now let us
see whether it reduces Project 75I from six submarines to five.”

Building
Project 75I in two Indian shipyards would also mean paying double for transfer
of technology (ToT) --- which includes supervisors, instructors, special tools,
jigs, etc. In the Scorpene contract, MDL paid Rs 6000 crore for ToT. This would
more than double if Project 75I is shared between two Indian shipyards.

Even so,
the die seems cast. Navy sources tell Business Standard that former secretary
of defence production, RK Singh, who became home secretary and then joined the
BJP, insisted on HSL’s participation as a condition for Project 75I.

The MoD
took over HSL from the Ministry of Shipping in Feb 2010, a white elephant that
the latter was glad to forego. The Rajya Sabha was informed on August 24, 2011
that HSL had accumulated losses of Rs 930 crore and a negative net worth of Rs
628 crore.

The MoD is
stonewalling another measure that the navy believes essential for overcoming the
submarine shortage. With the Scorpene and Project 75I delayed, the navy has
proposed extending the service life and providing a mid-life upgrade to the existing
submarines, which have exceeded the dives and hours of service that manufacturers
prescribe. That proposal has lain with the MoD for six months now, while the
submarine fleet becoming increasingly more hazardous to operate.